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Will China Finally Implode As A Result Of A Slowdown In GDP And Real Estate Problems?

In an article titled “Xi Crackdown Stifles Key Economic Engine” (online title may vary), Lingling Wei, the Wall Street Journal’s chief China correspondent and arguably the Western media’s premier source for deeply sourced news about China, pointed out the contradiction between China’s declaration that 2023 will be the “Year of Investing in China” and Chinese Communist Party Chair Xi Jinping’s sudden crackdown on Western businesses in China via raids on research firms and detentions of foreign

(As a former subscriber to a database similar to Bloomberg’s, Wind, in China, I would add a prohibition on Wind for foreigners and a ban on negative investment writing by Chinese authors to the crackdown.)

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According to Wei, 2023 is projected to be the first year in roughly four decades in which as much investment capital flows out of China as flows in; in other words, there will be no net inbound investment.

It has been suggested that nobody in China, including the Chinese government, understands China because domestically produced information about China can be opaque, misleading, or inaccurate on certain topics.

The Chinese economic success story may finally come to an end, similar to the 40-year tradition of boasting net inbound investment, as a result of predictable factors like the nation’s swift pivot toward authoritarianism, diminished trust with the international corporate and political community, a COVID crackdown that prioritized political power over citizen welfare, and anything else you can think of.

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China, however, is a study in contradictions for the Western mind, much like an elderly man in Beijing taking his post-meal health stroll while simultaneously smoking a cigarette.

Will China Surpass the United States, or Will It Collapse?

By Western economic standards, the Chinese economy is an inadequately designed and assembled piece of furniture that, according to known physical laws, should have collapsed years ago. China was predicted to implode in 2011 and on numerous other occasions. However, it has not. The West underestimates the power of state control—a powerful adhesive to supplement the furniture’s nails and screws—and presumably a resilient and determined populace with ten times the rate of savings in the West.

China was expected to surpass the US economy in 2017 as well. The following decade was the 2020s. Next, the 2030s Currently, it may be 2060 or never.

Traditional methods of forecasting (which aren’t even particularly accurate in stable Western economies with dependable data) fail to predict the Chinese economic system, but people continue to try.

Despite worse-than-ever relations, US-China trade is larger than ever.

The free world opposes China more and more.

According to a Pew survey conducted in 2022, 82% of Americans, 86% of Australians, 87% of Japanese, 80% of South Koreans, and 83% of Swedes have a negative opinion of China.

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The past five years have been marked by a US-China trade war, tariffs, semiconductor restrictions, and retaliations to them, export restrictions, investment restrictions, South China Sea tensions, Taiwan saber-rattling, a spy balloon, COVID, hundreds of billions of dollars annually in alleged IP theft, and probably more cross-border negative rhetoric than the previous 50 years combined; however, trade between the US and China has just reached a record high.

China: Is This Time Different?

Just as it was overconfident to assume that China would either implode or overtake the United States economically by a certain year, it is presumably also overconfident to assume that extreme possibilities are forever ruled out.

China’s economy is declining, although this “slowing” is still rapid by international standards.

China’s youth unemployment rose to a (relatively) sky-high 21.3% in June, as reported by Evelyn Cheng on CNBC.com. This is in addition to the recent GDP miss that has everyone talking: 6.3% year-over-year growth vs. 7.3% expected by analysts, and an almost-flat 0.8% GDP growth sequentially.

More than one-fifth of China’s children spent 12 hours a day studying for 10 to 15 years of their lives, frequently on the weekends as well, only to graduate from school with… no job.

Bloomberg reports that China’s exports in June fell 12.4% year-over-year in dollar terms, while imports fell 6.8%, versus the 10% and 4% declines that economists had predicted. Exports to the United States decreased by 24%, while exports to other major trading partners fell by double digits.

Deflation, the economic monster that paralyzed Japan’s economy for a quarter century, is suddenly a cause for concern.

Local governments have historically financed themselves with land “sales” (technically sales of land use rights, as the Chinese government owns the land), but property development is waning.

China, which once contributed more than half of global GDP growth, now contributes just more than a fifth.

Is this period unique?

The Chinese Communist Party values authority retention above all else. If the CCP seems surprisingly unconcerned about its international reputation, it’s because the opinions of other nations are unlikely to threaten its influence. But a populist domestic insurrection could, which is why China has more surveillance cameras per capita than any other country, limits WeChat groups to 500 members, tracked down COVID protestors using cell phone location data, and does other Big Brother-like things that tend to shock Westerners.

If a 40-year period can be considered an “event,” then China’s last 40 years have been the greatest wealth creation event in human history, with hundreds of millions of people being lifted out of poverty thanks to Deng Xiaoping’s Open Door Policy, which welcomed foreign capitalism and capital into the country.

A significant portion of the Chinese population, primarily Generation X, has risen from poverty to the middle class. Since 1978, wealth, life expectancy, and access to health care (along with cancer rates) have increased exponentially.

As was the case during the European and American industrial revolutions, people tend to prioritize earning money over ideology, human rights, safety, and anything else that appears to be a minor concern during a gold rush.

Children worked as coal miners in Pennsylvania around the turn of the twentieth century.

As these economic opportunities diminish, other priorities—these minute details—and complaints tend to take precedence.

In other words, China’s greatest threat is probably its own economy. To what extent can authoritarianism and economic prosperity coexist? is the greatest conundrum.

How much more economic slowdown, semiconductor restrictions, and tariffs can China withstand?

The general response is more than the majority of Western “experts” believe. The precise answer may be as much suffering as possible prior to the onset of social instability.

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